Massive energy demand in Asia to make coal assets an ideal target – buyers from India and Japan likely.

Generation and network assets should come to market within two to four years.

Domestic deals still dominate, with most cross-border deals done by larger utilities and financial buyers looking to draw synergies through optimizing global asset portfolios and diversifying their footprint into growth markets.

New buyers bring new direction

The rise of non-traditional buyers is a continuing trend for 2013 and beyond. Private equity, infrastructure and pension funds have recently made significant transactions – headlined by E.ON’s US$3.7b sale of Open Grid Europe.

These buyers are attracted by the predictable cash flows and earnings of regulated assets. Some buyers, such as those from Asia and the Middle East, are keen to secure fuel supplies and broaden their footprint.

Innovative projects and non-traditional investors will become the norm in 2013 and beyond. Demand-side management and energy efficiency continued to develop in 2012, and we predict 2013 will see a significant step-up. It is not feasible to keep pouring capital into more resources on the supply side: the sector needs to invest further in efficiency, and this will undoubtedly influence deals.

Positive outlook for 2013

Whether the aim is to reduce debt, focus core operations or free up capital to invest in emerging markets, there will be robust activity in 2013. Access to credit remains relatively strong, with a war chest of sovereign wealth capital ready to be put to work.

The valuation gap that held up some deals in 2012 will narrow as sellers act on investor pressure to redeploy capital. Utilities that take the time with due diligence and gathering market intelligence will maximize value and ensure their best chances of success.

How we can help

Doing the right deal in the right way can make a P&U business more competitive and profitable. Our Transactions Advisory Services professionals advise and support clients through the life cycle of a transaction, from early stage to execution and post-deal activities. Whether buying or selling, our proven practices and consistent methodologies can help achieve successful outcomes.

Veolia’s formula for transaction success

Last year was pivotal for water and waste management multinational Veolia, which embarked on a €5b (US$6.46b) asset divestment program.

Speaking to EY, Hubert Sueur, Director of Investments, M&A and Equity Financing, said that robust preparation, an experienced team, a clear strategy and excellent timing were key to the program’s success.

Sueur said Veolia recognized the attraction of its “quality assets” so, it avoided bilateral discussions with any potential buyers to maximize value: “We told everyone: ‘There’s a process, and we’re happy for you to participate’. A competitive process is the best way to achieve a good market price.”

Sueur said Veolia’s divestment program will run until the end of 2013 with the aim of reducing net debt to €12b (US$15.5b). He added that any future growth capex activity will have to meet “very strict” profitability guidelines and that Veolia is not looking at external growth through acquisitions right now. “We keep the radar on, but we are not active.”

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Joseph is Global Power & Utilities Sector Resident for Transaction Advisory Services and has managed numerous transactions for private equity, corporate investors and sovereign wealth funds. This has included financial analysis and due diligence (both buy-side and sell-side), deal negotiation, analysis of financial forecasts, working capital requirements, analysis of free cash flow, and synergy assessment. Joseph has worked in various parts of the sector, including electric and gas utilities, independent power producers, retail and renewables.

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